Comment 2.1

• Colin C. Williams

• University of Sheffield

This chapter represents the first known attempt to analyze how innovation occurs in the informal economy in developing economies. In this comment, I wish, first, to assert that many of the ideas raised are just as applicable to western economies and, second, to identify the possible future steps required to further understanding of how the informal economy is a source of innovation.

The study of the informal economy has its origins in the developing world and was largely confined to studies of developing economies for many decades (Hart Reference Hart1973). However, a burgeoning literature has recently revealed the persistence of the informal economy in the western world. Although the informal economy accounts for a larger proportion of GDP and a greater proportion of the workforce in the developing world than in the western world (Schneider Reference Schneider2008, Reference Schneider2013; Williams Reference Williams2015), estimates nevertheless suggest that the informal economy is equivalent to about 16 percent of GDP in OECD countries (Schneider and Williams Reference Schneider and Williams2013; Williams Reference Williams2014b) and that about 5 percent of the population annually work in the informal economy (Williams Reference Williams2014a).

In the early literature studying the informal economy in the western world, such endeavor was largely represented as low-paid waged work conducted under “sweatshop-like” conditions (Castells and Portes Reference Castells, Portes, Portes, Castells and Benton1989; Benton Reference Benton1990). Indeed, even discussions of informal self-employment depicted it as “precarious” or “false” self-employment arising as a result of advanced capitalism sub-contracting and outsourcing to the informal economy as a cost-reduction strategy (Gallin Reference Gallin2001; Davis Reference Davis2006). Based on this negative depiction, the policy approach advocated was its eradication (Williams Reference Williams2014a).

Following the turn of the millennium, however, this view and the resultant policy approach have begun to be challenged. Grounded in recognition that the vast majority of informal economic activity in western economies is conducted on an own-account basis (European Commission 2014; Williams Reference Williams2014a), such activity has been re-read as entrepreneurial endeavor and as constituting a “hidden enterprise culture” (Williams Reference Williams2006, Reference Williams2014c). The result has been a new sub-field of entrepreneurship scholarship focused on “informal sector entrepreneurship” that has sought to understand the role played by the informal economy in business start-ups (Williams and Martinez-Perez Reference Williams and Martinez-Perez2014a, Reference Williams and Martinez-Perez2014b): who engages in such endeavor (Small Business Council 2004; Williams Reference Williams2008), what types of activity are conducted (Williams Reference Williams2007; Dellot Reference Dellot2012; Barbour and Llanes Reference Barbour and Llanes2013) and the motives for participating in entrepreneurship in the informal economy (Snyder Reference Snyder2004; Williams Reference Williams2010). One outcome has been a shift in policy approach. Rather than pursue its eradication, much of the literature and many western governments are now seeking to harness this sphere (European Commission 2007; Williams and Nadin Reference Williams and Nadin2013, Reference Williams and Nadin2014; OECD 2014; Williams Reference Williams2014b). The current chapter is part of this shift.

One useful way to understand what is happening is to recognize that in conceptual terms the binary hierarchy between the formal and informal economy is being deconstructed. For Derrida (Reference Derrida1967), western thought is characterized by a hierarchical binary mode of thinking that, first, conceptualizes objects/identities as stable, bounded and constituted via negation (e.g. the formal and informal economy) and, second, reads the resultant binary structures in a hierarchical manner whereby the first term in any dualism (the superordinate) is endowed with positivity (in this case, the formal economy) and the second term, the subordinate (or subservient) “other,” with negativity (the informal economy). The outcome is to establish a relation of opposition and exclusion, rather than similarity and mixture, between the two sides and to overlay onto it a normative narrative of “progress” that privileges the superordinate “us” over the subordinate “other.” This lens is a useful heuristic device for viewing both the way in which the concept of the informal economy has evolved and analyses of it like the one in this chapter. It becomes immediately obvious that much of literature over the past three decades or so in the western world has been contesting the binary hierarchy between formal and informal economy and that this chapter is part of that process.

Conventionally, the informal economy was viewed as a residual and marginal sphere, as separate and discrete from the formal economy, and as a negative phenomenon. All these elements reflect its position as a subordinate other in the formal/informal economy binary hierarchy. The literature on the informal economy in the western world over the past few decades has been deconstructing this conventional binary hierarchical depiction. It has shown that the informal economy is persisting and even growing in the western world, that the formal and informal economies are not discrete and separate realms and that the boundaries are often blurred (for example, formal firms conducting a portion of their trade off the books); and attempts have been made to revalue the “subordinate” status of the informal economy such as by showing how it is a hidden enterprise culture.

The identification of innovation in the informal economy continues in this tradition. It is part of this broader process of deconstructing the conventional binary hierarchy. This signals the way forward and also the barriers that need to be addressed when seeking to represent the informal economy as a source of innovation. Innovation is itself the superordinate term in an innovation/non-innovation binary hierarchy, and this chapter and the book of which it forms part represent an attempt to break the close association between two superordinate terms (the formal economy and innovation) and two subordinate terms (the informal economy and non-innovation). To do this, however, one cannot simply apply the superordinate term of innovation to the subordinate term of the informal economy. The innovation/non-innovation binary hierarchy itself needs to be deconstructed. This chapter begins to do so by questioning what constitutes innovation, such as when the authors note that there is more adaptation and imitation than original invention in the informal economy. The problem remains that the innovation/non-innovation binary hierarchy is closely associated with many other binary hierarchies such as export production/local production, productive/unproductive, formal/informal skills and external/local markets. To assert that a superordinate term in one binary hierarchy (innovation) is associated with a subordinate term in another binary hierarchy (the informal economy) requires us to question the normative values attached to superordinate and subordinate terms in many other binary hierarchies. This is perhaps the biggest challenge now confronting those asserting that the informal economy is a source of innovation. It requires the re-valuing of many other subordinate terms (for example, local production, local markets, informal skills) and the de-valuing of many superordinate terms (for example, export production, external markets, formal skills). Unless this is done, then perhaps the inevitable outcome will be to show only that the informal economy is lacking in innovation relative to the formal economy.